Realizing the American Dream

UnderstandingCredit

Agenda

• Your credit rating

• Credit reporting agencies and credit reports

• What is a credit score?

• Improving your credit record

Agenda (Cont’d)

• Lack of credit history

• Managing debts

• Identity theft

• Know your rights

Your Credit Rating

• How much you have borrowed

• From whom you borrowed

• How well you have repaid your debts

• How you are handling current debts

Importance of Good Credit

• To obtain a lower interest rate

• To get a job

• To lease property

• To establish utility services

• To obtain insurance

Credit Reporting Agencies

Experian www.experian.com (800) 831-5614

TransUnion www.transunion.com (800) 888-4213

Equifax www.equifax.com (800) 685-1111

Types of Credit Reports

• Consumer credit report

• Infile credit report

• Residential mortgage credit report

Ordering Your Credit Report

• Fair Credit Reporting Act provisions• Ordering your free copy annually from all 3

credit reporting agencies

Reviewing Your Credit Report

• Identifying information

• Credit information

• Public record information

• Inquiries

Types of Accounts

Use and responsibility

• Individual

• Joint

• Authorized user

Payment arrangement

• Installment

• Revolving

• Open 30-day

Credit ScoresCredit Reporting Agency

FICO Score Range

Equifax BEACON 300–850

Experian Experian/Fair Isaac Risk Model

340–820

TransUnion EMPIRICA 150–934

What Makes Up a Credit Score?

• Payment history 35%

• Amount of outstanding debt 30%

• Length of credit history 15%

• Types of credit 10%

• New credit 10%

Tips for Improving Your Credit Score

• Correct any inaccurate information

• Pay your bills on time

• Minimize outstanding debt

• Open new accounts only if needed

• Manage credit accounts responsibly

Correcting Errors and Omissions

• Follow the instructions provided

• Explain the problem in a brief letter

• Contact the creditor directly if the credit

reporting agency does not find the error

• Write a consumer statement if the issue

remains unresolved

Common Credit Problems• Pattern of late payments on current debts

• Bankruptcies

• Judgments or liens

• Past-due or collection accounts

• Charge-offs

• Foreclosures or repossessions

How Long Does Information Remain?

• Negative information 7 years • Bankruptcies 10 years• Judgments 7 years• Student loans 7 years• Inquiries 2 years

Generally, the period runs from the date of the last transaction

Solving Credit Problems

• Prepare a realistic spending plan

• Contact creditors

• Seek professional help

• Pay past due accounts

Solving Credit Problems (Cont’d)

• Negotiate discounted payoffs

• Negotiate a workout plan

• Write an explanation letter

• Negotiate a debt-management plan

Debt-Management Plans

• At start, accounts may be paid late

• Not all creditors “re-age” accounts

• Some creditors report the plans

• Many lenders view the plans as Chapter 13 bankruptcy

Credit Counseling

• NeighborWorks® organizations

• Consumer Credit Counseling Services

Danger Signals of Quick Credit Fixes • Asking for payment before credit repair

services are provided

• Advising you to dispute all negative information

• Over-promising quick results

• Helping you get a new identity

Nontraditional Credit• Rent payments

• Gas, electric and other utility payments

• Child care or child support payments

• Any other large, recurring expense

Establishing Credit

• Always pay bills on time

• Open checking and savings accounts

• Apply for a loan using savings as collateral

• Apply for a limited-use credit card

• Apply for a loan with a co-signer

Managing Your Debts

• Be honest about your debts

• Add up what you owe to all creditors

• Figure out why you have money problems

• Decide how many credit cards you really need

Managing Your Debts (Cont’d)

• Pay off or pay down debts

• Consider consolidating credit card bills

• Make or revise a family spending plan

• Pay cash for everything you buy

• Give each member of household “mad” money

Managing Your Debts (Cont’d)

• Establish or maintain savings plan

• Automate to be on time

• Give up luxuries temporarily

• Look to the future

• Try “Power-Pay” for smarter paying

Pizza Cost ComparisonPayment Methods

Terms Cost to Consumer

Cash Pay now $10

Credit Card with Balance

Pay off over 18 months with 18% interest

$42.40

Opt Out to Avoid Debt

Opt-Out Number

888-567-8688

Reducing Your Risk of Identity Theft

• Only provide your Social Security number as needed

• Be cautious with personal information• Shred documents• Keep mail safe• Store personal information in a safe place

Reducing Your Risk (Cont’d)

• Don’t carry extra credit cards or paperwork

• Create unique passwords and PINS for accounts

• Pay attention to billing cycles

• Order credit reports once a year

If You’re a Victim• Contact Credit Reporting Agency fraud

departments• Contact all creditors involved• File a police report• Contact the FTC• Keep records of contacts

Know Your Rights

• Prevent discrimination by companies that give credit

• Require credit companies to give reasons for denials

• Require credit companies to answer consumers’ questions

Equal Credit Opportunity Act

• Prevents lender discrimination on the basis of race, color, religion, national origin, sex, age, marital status or source of income

• Requires disclosures of reason for denial within 30 days

Truth in Lending Act

• Requires lenders to provide complete and accurate information about credit costs and terms

• Requires companies to send monthly billing statements showing balance, billing cycle, rate, payments and other information

Fair Credit Billing Act

• Provides a 60-day right to question any item on your credit card bill

• Requires creditors to begin research within 30 days• Requires creditors to supply an answer within 90

days• Allows you to skip payments on disputed items until

you hear back from the creditor

Fair Credit Reporting Act

Protects your rights to know what is in your credit report

and to fix mistakes

Fair Debt Collection Practices Act Prevents collection agency employees from:• failing to identify themselves

• calling your home before 8 a.m. or after 9 p.m.

• contacting you after being told in writing to stop

• harassing, oppressing or abusing you

• falsely implying that you have committed a crime

• telling others that you owe money

• failing to contact you through your attorney

Summary• Credit reports and scores and how lenders use

them

• The importance of a good credit rating

• How to check your credit report and score

• How to correct errors

• What to do if you have had credit problems

Summary (Cont’d)• What to do if you have never used credit

• How to change your spending habits and manage debts

• How to minimize your risk for identity theft, and what to do if your identity is stolen

• The laws that protect your consumer rights